Is Your HOA FHA-Approved?

Many homeowner associations in Orange County and Los Angeles County are experiencing certain problems, and these problems could lead to more difficult-to-sell units in an already-soft condo market. For example, some loans are not getting approved for conventional Fannie Mae financing at the close of escrow due to too many owners being delinquent on monthly dues. As times become tough, and owners have to short sell, or go into foreclosure, the associations are not able to collect the scheduled income, and lowered reserves are a concern to lenders.
While associations are not required to have special approval for conventional loans, HUD now requires complete project approval before an FHA loan may be given. And the advantage is that sellers have more potential buyers with this approval, many more. FHA loans have made up 50% of the market in some areas, because they fit the 1st-time buyer's budget with 3.5% down payment, and 1st-time buyers are the majority of buyers in some markets, including condominiums.

If your association is up for renewal for FHA loans, or your association would like to be FHA approved, the following factors are essential for project completion:
1. Owner occupancy must be 50%.
2. No more than 15% of the units can be dues-delinquent over 30 days.
3. No one entity or person may own more than 10%--this is a problem in a 12-unit complex where 1 person owns 2 units, and this is not uncommon in areas such as Long Beach and San Pedro.
4. No more than 50% of the units may be FHA insured.
5. No pending litigation which adversely affects the entire association (collection and foreclosure litigation does not make the HOA ineligible).

HOAs must provide the condominium documents, along with certain information, and if eligible, the process may take about 60 days or more. This approval can help out owners who wish to refinance as well. You don't have to be selling in order to start the approval process, in fact, it's far better if the association obtains it before units go on the market, or an owners attempts a re-finance.
To be approved will usually cost about $1500 to $2000. For more information on documents HOAs provide, and help with finding a source, please contact me to find out where to get started. Some lenders will provide the approval if they are the source of your loan.

1 comment:

EddieStokesLoans said...

Great Article Julia. Non Warrantable Condos seem to be especially prevalent in the Long Beach area. Strict Loan guidelines have brought many HOA Projects to the brink.


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